Softbank to buy 70% of Sprint in $20B deal

DaisukeWakabayashi

--Japanese mobile carrier to buy further $12 billion of Sprint shares in the market

--Deal would mark biggest-ever overseas acquisition by a Japanese firm

(Adds new comments in 5th, 6th paragraphs)

TOKYO--Japan's Softbank Corp. (9984.TO) said Monday it will buy a 70% stake in U.S. mobile carrier Sprint Nextel Corp.
S, +0.90%
for about $20 billion in the biggest-ever overseas acquisition by a Japanese firm.

The deal is designed to carve an opening in the U.S. for Softbank, Japan's third-largest mobile carrier. It will provide the third-largest U.S. wireless operator an immediate infusion of cash, helping it better compete with bigger rivals in one of the world's biggest and most lucrative markets for smartphones.

In a statement, Softbank, which also has a range of Internet operations, said it would acquire a majority stake in the U.S. carrier by buying $8 billion of shares directly from Sprint and then buying another $12.1 billion of shares in the market.

The deal would transform Softbank, a relative newcomer in the telecommunications industry, into one of the world's largest telecom groups with about 90 million subscribers when combined with Sprint. It expects to complete the deal by mid-2013.

Softbank chief executive Masayoshi Son said he understands that some people are saying the move is too risky because the company would have to start from scratch in a totally new market. "For us to not challenge ourselves may be an even greater risk," said Mr. Son, recalling how he took a big leap of faith as a 16-year old when he moved to the United States to seek opportunities he didn't think were available in Japan.

At a joint press conference in Tokyo, Sprint chief executive Dan Hesse said: "There couldn't be a better time for this infusion of cash," noting that the funds could be used to grow the business "both internally and externally." Mr. Hesse said Sprint's board wanted to "learn from Masa." Mr. Hesse will remain as chief executive of the newly formed entity, New Sprint.

In a highly complex deal, Softbank will buy $3.1 billion of bonds with a seven-year maturity that will convert into Sprint stock at $5.25 a share. Softbank will also buy $4.9 billion of new shares to be issued by New Sprint for $5.25 per share. Finally, the remaining $12.1 billion will be distributed to Sprint stockholders, of which 55% of current Sprint shares will be exchanged for $7.30 a share in cash. The remaining shares will be converted into New Sprint shares.

Sprint's stock closed Friday at $5.73 a share.

Fueled by a strong yen and cheap borrowing costs, Japanese companies have been buying overseas assets at a record pace, already spending more than $65 billion so far this year, according to data provider Dealogic.

Softbank's deal with Sprint would mark the largest foreign purchase by a Japanese company, topping Japan Tobacco Inc.'s (2914.TO) $19.1 billion purchase, including debt, of the U.K.'s Gallaher Group in 2006 and Takeda Pharmaceutical Co.'s (4502.TO) $13.7 billion purchase of Swiss drug maker Nycomed last year.

Softbank shares have fallen more than 20% in Tokyo trading since news broke in Tokyo late Thursday that the two companies were in advanced talks with investors, questioning the synergies in a combination of a Japanese and a U.S. carrier.

While the deal dramatically increases the size and scope of Softbank's business--currently Japan's third-largest mobile operator and an investor in Web properties such as China's Alibaba.com, online game provider Zynga Inc., and domestic portal Yahoo Japan Corp.--it also carries big potential risks.

Though gaining scale for procuring handsets and telecommunication equipment, Softbank would be taking on a heavily indebted carrier and operating in a country where it has no experience.

Moreover, the Japanese company is still saddled with debt from a leveraged buyout of Vodafone PLC's Japanese arm in 2006. It will be investing in a heavily indebted U.S. carrier that has had losses for half a decade in a market dominated by bigger competitors.

Like when he bought Vodafone Japan, Mr. Son said Sprint is up against a duopoly of dominant rivals in Verizon Wireless (VRZ.XX) and AT&T Wireless. This is a compelling opportunity, he said, because it can employ many of the same business tactics it used to steal customers from NTT DoCoMo Inc. and KDDI Corp. in Japan. "We feel like we can repeat what we did in Japan," said Mr. Son.

To finance the deal, Softbank will receive a short-term syndicated loan of Y1.6 trillion, or $20.4 billion, from Japan's three largest banks and from Deutsche Bank, according to people familiar with the talks. The three Japanese banks are Mizuho Financial Group Inc. (8411.TO), Sumitomo Mitsui Financial Group Inc. (8316.TO), and Mitsubishi UFJ Financial Group Inc. (8306.TO).

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